A Study of Use of Financial Ratio for research

Abstract

 A review of published research in the field of accounting and finance reveals that the use of ratio calculations with multivariate analysis for predicting the performance of business firms is common. However, much of this research uses large database information without determining if needed  sample assumptions can be met for reliable conclusions to be drawn by the researchers. This paper presents recommended adjustment techniques for researchers using large databases for ratio calculation to allow for confidence that the results of analysis will be meaningful and that inferences may be drawn from the data. Using a sample  for Entrepreneurial Leadership Financial Statement Database, Balance Sheet and Income Statement data of  firms is used to illustrate and explain techniques for data error identification, handling the problem of denominators being negative or approaching zero when calculating ratios, and effective techniques for transforming the data to achieve approximation of normal distributions. The application of these recommendations will allow researchers to use financial statement data samples that will meet required characteristics for the use of valid multivariate statistical analysis